The revised excise structure significantly raises duties across cigarette categories, adding to the existing GST burden and increasing costs for smokers nationwide. Officials estimate that retail prices could multiply once the higher tax
BY PC Bureau
January 1, 2026: Cigarette prices in India are set to rise sharply from February 1 after the government notified a steep hike in excise duties following Parliament’s approval of the Central Excise (Amendment) Bill, 2025.
In an order issued late Wednesday, the Finance Ministry said excise duty on cigarettes will now range between ₹2,050 and ₹8,500 per 1,000 sticks, depending on the length of the product. The revised duties will be levied in addition to a 40% Goods and Services Tax (GST), significantly increasing the overall tax burden on tobacco products.
The move is expected to push up cigarette prices for nearly 100 million smokers in the world’s most populous country. Officials estimate that a cigarette currently priced at around ₹18 could cost as much as ₹72 once the higher levies are fully passed on to consumers.
Sharp Tax Hike Across Tobacco Products
The Central Excise (Amendment) Bill replaces a temporary levy and overhauls excise rates across tobacco categories, including cigarettes, cigars, hookah tobacco, chewing tobacco, and smoking mixtures.
Under the amended law, excise duty on cigarettes rises sharply from the existing ₹200–₹735 per 1,000 sticks to as high as ₹11,000 per 1,000 sticks, depending on category. Chewing tobacco will now attract a 100% excise duty, up from 25%, while hookah tobacco will face 40% excise, compared with 25% earlier. Smoking mixtures see the steepest increase, with excise duty jumping fivefold from 60% to 300%.
Despite already levying among the highest tobacco taxes in the region, cigarettes in India have remained relatively affordable compared to income levels. Total taxes currently account for about 53% of retail prices, well below the World Health Organization’s recommended benchmark of 75% aimed at discouraging consumption. The latest hike signals a renewed push to use taxation as a public health tool, rather than the incremental increases seen in recent years.
ITC DOWN 6% in trade
Below is the new notification from the Govt
Analysts initial take is that Cigarettes price increase of 20-25% atleast needs to be take after the new duty notification pic.twitter.com/8nfZrlwbKI
— Yatin Mota (@yatinmota) January 1, 2026
The move also carries revenue implications, with tobacco continuing to be a significant contributor to indirect tax collections even as volumes gradually decline.
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Market Reaction
Tobacco stocks came under pressure following the notification. ITC Ltd shares slipped to their lowest level in nearly two years on Thursday, January 1, weighed down by concerns over higher taxation and a large block deal.
The Finance Ministry also notified that cigarettes, tobacco, and bidis will attract an effective 40% GST from February 1, 2026, comprising the standard 28% GST, with excise duty and the National Calamity Contingent Duty (NCCD) subsumed into the new structure. Investors are assessing whether any additional cess or duty could be imposed and how the final tax burden will shape up.
Sentiment was further hit by a sizeable block deal in which over 4 crore ITC shares, representing about 0.3% of the company’s equity, changed hands at an average price of ₹400 per share, valuing the transaction at ₹1,614.5 crore.
Cigarettes remain a key profit driver for ITC, accounting for nearly 48% of its total revenue in the September quarter. Segment revenue rose 6.7% year-on-year to ₹8,722 crore, while volumes grew 6%, in line with market expectations.
During the session, ITC shares were down 4.1% at ₹386.3, extending losses to about 12% in 2025—its first year of negative returns since 2020. The fall marked the stock’s sharpest single-day decline in over eight months.
Shares of Godfrey Phillips India also tumbled nearly 10% to ₹2,488 on the NSE by 10:55 am. The stock has fallen about 12% over the past five days and 16% in the last six months, though it remains up 48% in 2025. The company trades at a P/E of 43.45 with a market capitalisation of ₹38,864 crore.
